Rev. Proc. 73-36

SECTION 346

CHECKLIST QUESTIONNAIRE

CONTENTS

1. Purpose

The purpose of this Revenue Procedure is to set forth in a convenient checklist questionnaire the information necessary to be included in a request for a ruling under section 346 of the Internal Revenue Code of 1954 (and its related sections, 331 and 336) which relates to a distribution by a corporation in partial liquidation.

Sec. 2. Background.

The Internal Revenue Service receives many requests for rulings in which the information furnished as to the proposed transaction is not complete enough to permit a determination to be made. In such cases it is necessary to secure additional facts from the taxpayer before the ruling request can be considered. This procedure is time consuming for both Service personnel and taxpayers and delays issuance of the final ruling letter. This checklist will facilitate the filing of requests for rulings under section 346 of the Code by showing specific information which should be included so that the application will be as complete as possible when originally filed. However, since the information necessary to rule on a particular transaction depends upon all the facts and circumstances of that case, information in addition to that suggested in this Revenue Procedure may be required. Nevertheless, careful use of the checklist should avoid much needless delay and permit the issuance of rulings in the most expeditious fashion possible.

The authority and general procedures of the National Office of the Service and of the Office of the District Directors of Internal Revenue with respect to the issuance of rulings and determination letters are outlined in Rev. Proc. 72-3, 1972-1 C.B. 698. See also Rev. Proc. 72-9, 1972-1 C.B. 718. Careful attention to all the requirements of those Revenue Procedures will serve to minimize needless delays in processing requests for rulings.

Sec. 3. Information to Be Included in Requests For Rulings under Section 346 of the Code.

Each of the items included in this section should be specifically dealt with in the application even though apparent nonapplicability exists. Presentation of the information required should follow the format of this Revenue Procedure as closely as possible with appropriate descriptive headings. If an item is not applicable, the letters "N.A." may be inserted after that section or subsection to so indicate.

.01 Information regarding the liquidating corporation.

1 Identification.--Name, taxpayer identification number, and place and date of incorporation of the liquidating corporation (the Distributor).

2 Tax year.--The last day of the Distributor's taxable year.

3 Jurisdiction.--The location of the District Office that will have audit jurisdiction over the return of the Distributor and a statement whether, to the best knowledge of the taxpayer or his representative, the identical issue is being considered by any field office of the Service in connection with an active examination or audit of a tax return already filed or is being considered by a branch office of the Appellate Division. See Rev. Proc. 72-3.

.02 Type and description of partial liquidation.

1 Series of distributions in complete liquidation.--If it is contended the distribution is one of a series of distributions in redemption of all of the stock of the Distributor, furnish the following information:

(a) Reasons.--Give reasons why the Distributor is being liquidated in a series of distributions rather than in one distribution.

(b) Expected date and amount of each of the distributions.--In this respect, see Sec. 4.01-5 of Rev. Proc. 72-9 which states that rulings will not ordinarily be issued on the tax effect to shareholders of the liquidation of a corporation by a series of distributions, where the distributions in liquidation are to be made over a period in excess of three years from the adoption of the plan of liquidation.

(c) Dissolution.--State whether the Distributor will be dissolved at the time of the final distribution in complete liquidation. If it will not, give the reasons for not dissolving it.

2 Distribution not essentially equivalent to a dividend.--If it is contended the distribution is not essentially equivalent to a dividend within the meaning of section 346(a)(2) of the Code, furnish the following information:

(a) General information as to the business or businesses of the Distributor.

(1) Description.--Furnish a full and complete description of the business or businesses of the Distributor, and identify the business terminated or contracted.

(2) How and when the business or businesses were acquired.

(A) Acquired from another person.--If the business or businesses were acquired within the past five years from other persons, identify the persons, their relationship to the Distributor or its shareholders, the type of transactions in which they were acquired, the consideration given in exchange, the date of the transactions, and the amount of gain or loss, if any, recognized on the transactions.

(B) Initiated by the Distributor.--If the business or businesses were commenced within the past five years by the Distributor, give the source of the capital and assets used to commence and operate each business and give the dates the operation of each business commenced.

(b) Termination of a business.--If it is contended the distribution is not essentially equivalent to a dividend because of the termination of a business within the meaning of section 346(b) of the Code, furnish the following informtion.

(1) Active business.--Furnish the information necessary to establish that the businesses are "active businesses" within the meaning of section 1.355-1(c) of the Income Tax Regulations.

(2) Five-year requirement.

(A) Date terminated.--Give the date the business operations were terminated.

(B) Continuous and continued operation.--State whether the businesses have been continuously and actively conducted within the meaning of section 1.355-1(c) of the regulations for the five-year period immediately preceding the date of sale (see 3.02(g)(3)(A) below) or distribution (see 3.02-2(g)(3)(B)(i) below) of the assets of the terminated business and whether the remaining business will continue to be actively operated.

(c) Genuine or bona fide contraction of a business.--If it is contended the distribution is not essentially equivalent to a dividend because of a genuine or bona fide contraction of the Distributor's business within the meaning of section 1.346-1(a)(1) of the regulations, furnish the following information:

(1) Involuntary.--If the contraction was involuntary in that it was beyond the control of the Distributor, describe the conditions or causes of the contraction such as a fire, flood, storm, condemnation, loss of a franchise, etc.

(2) Voluntary.--If the contraction was voluntary, give the business purpose for, and a complete description of, the circumstances, conditions or transactions leading to, the contraction.

(3) Date or period contracted.--If the contraction was involuntary, give the date of the incident leading to the contraction. If the contraction was voluntary, give the dates on which the contraction commenced and was completed.

(d) Reductions resulting from the termination or contraction of a business.

(1) Assets.

(A) Description.--Describe those assets of the Distributor which have been or will be reduced, and identify each asset reduction with the terminated business or the involuntary acts or conditions described in 3.02-2(c)(1) or 3.02-2(c)(2) above. Relate these assets to those assets described in 3.02-2(g)(1) and (2) ("Distribution of assets") below.

(B) Disposition other than by distribution.--If the Distributor will sell, lease, or otherwise dispose of any property, other than by distribution to the shareholders, furnish the following information:

(i) Transaction.--Describe the assets to be disposed of and the type of transaction.

(ii) Basis and amount realized.--Give the tax basis and the amount and type of consideration to be received in exchange, including insurance proceeds and condemnation award if applicable.

(iii) Relationship of acquiring party.--Identify the person acquiring the assets, and give the relationship, direct or indirect, of the Distributor and its shareholders to that person, including, if a corporation, the number of shares of stock the Distributor and its shareholders own in the acquiring corporation.

(C) Inventory.--If any inventory will be sold other than in the ordinary course of business, furnish the following:

(i) Average inventory.--A statement whether the items in such inventory were substantially similar to, and substantially the same in quantity as, those during the prior five-year period.

(ii) Bulk sale.--A statement whether the inventory will be sold in "bulk" and the number of persons purchasing the inventory.

(D) Actively used in operations.--Furnish a statement whether all of the assets which will be distributed to the shareholders, or those assets which will be sold and the proceeds from the sale distributed, were being actively used in operations at the time of termination or contraction of the business, and whether such assets had been actively used for the past five years, or were replacements of assets actively used for such period, or whether such assets are or were idle, passive or investment assets.

(2) Gross sales, fees, etc.--Give the average annual amount of gross sales, fees, etc. of the terminated or contracted business over the past five years, the percentage of that gross to the total gross of the Distributor, and the amount the total gross will be reduced as a result of the termination or contraction.

(3) Employees.--Give the number of employees of the Distributor whose services will be terminated and who will be discharged as a result of the termination or contraction and the percent that number is of the total number of employees of the Distributor.

(4) Other reductions related to a termination or genuine or bona fide contraction of a business.--Furnish information to support any other reductions as a result of the termination or contraction, such as in territory, floor space, production, fixed assets, activities, etc.

(e) Changes in business and assets of the Distributor.

(1) Past changes.

(A) Business activity.--Describe any substantial changes in the business activities of the Distributor during the past five years in addition to the one on which this application is based, such as acquisitions, expansions, conversions, and other contractions or terminations.

(B) Assets.--Describe any substantial changes in assets during the past five years other than those occurring in the normal course of business, such as an unusual or abnormal increase in working capital, extraordinary sales, purchases, replacements, and renovations of fixed and operating assets, and shifts, transfers, or loans of assets (including working capital) from one business activity to another, including the business terminated or contracted.

(2) Proposed changes.--Describe any acquisitions, expansions, additions, conversions, renovations, or replacements of business activity or assets proposed for the future and the source of funds and capital for such changes.

(f) Other factors relevant in determining whether there is a true termination or genuine contraction.

(1) Information as to source of assets to be distributed.--A statement whether the assets to be distributed, or proceeds from sale of assets, are from the following sources:

(A) Expansion reserve.--A reserve for expansion no longer needed.

(B) Business decline.--A mere decline in, or loss of, business.

(C) Working capital decrease.--A mere decrease in need for working capital.

(D) Nominal business.--Proceeds from the sale of a business which is nominal in relation to the entire business of the Distributor.

(E) Loss business.--A business operated at a loss which acquired assets from another business of the Distributor.

(2) Purpose of distribution.

(A) The Distributor's purpose.--State the business purpose of, and the advantages to, the Distributor in making the distribution.

(B) Shareholder purpose.--State the reasons why the shareholders desire this distribution, their part in formulating and approving the plan, and the advantages to the shareholders as a result of the distribution.

(g) Distribution of assets.

(1) Cash.

(A) Amount.--State the total amount of cash to be distributed.

(B) Source.--Furnish a statement whether the cash to be distributed will be limited to the following:

(i) Working capital.--The portion of the working capital reasonably attributable to the terminated or contracted business activities and no longer required in the operation of the continuing business activities. See Rev. Rul. 60-232, 1960-2 C.B. 115, and Rev. Proc. 72-9.

(ii) Net proceeds.--The amount realized on the sale of assets of the business terminated or contracted (or insurance proceeds or condemnation award) less all liabilities attributable to those assets retained or distributed in kind (including all expenses and taxes incurred on the sale and those incurred in connection with the distribution).

(2) Property other than cash.--Describe fully all types and categories of property, tangible and intangible, other than cash, to be distributed by the Distributor to the shareholders.

(3) Timely distributions.

(A) Date of distributions.--Give the dates, or expected dates, of distributions of all assets pursuant to the plan of partial liquidation. State whether all distributions pursuant to the plan will be made within the taxable year in which the plan is adopted or within the succeeding taxable year.

(B) Proceeds from sale, insurance benefits, condemnation award, etc.

(i) Time between receipt of proceeds and distribution.--Give the date of sale, destruction, or condemnation, and receipt of proceeds therefrom. If there is any time lag between the receipt of proceeds and distribution, give the reasons.

(ii) Use of proceeds between time of receipt and distribution.

(a) Temporary investments.--Describe how the proceeds will be maintained before the distribution, the type of investment, if any, and how the investment was or will be disposed of.

(b) Gain, income or loss on temporary investments.--State the amount of gain, income or loss realized on the temporary investment and the disposition of any such gain or income.

(4) All assets or proceeds from terminated business distributed.--If it is contended the partial liquidation is a termination under section 346(b) of the Code, furnish a statement that all assets or net proceeds from the sale of the assets will be distributed. If all such assets will not be distributed, give reasons why and explain how the undistributed assets will be used by the Distributor in the future.

(h) Discharge or disposition of liabilities.

(1) Amount.--Furnish the amount of liabilities of the terminated or contracted business.

(2) Discharge.--State the source of the funds that will be used to discharge these liabilities.

(3) Reduction in distribution.--State whether the property of the terminated or contracted business or the proceeds which will be distributed to the shareholders from the sale of such property will be reduced by the amount of such liabilities. See 3.02-2(g)(1)(B)(ii) above.

(4) Assumption by shareholders.--Furnish the amount of liabilities, if any, to be assumed by each of the distributee-shareholders, the amount of liabilities to which the property distributed is subject, the adjusted basis of the property distributed to each such shareholder in the hands of the Distributor, and the fair market value of the property distributed to such shareholder.

.03 Recognition of gain or income to the Distributor.--If it is contended that neither gain nor income will be recognized to the Distributor upon the distribution of property, state the reasons, including statements with respect to the following:

1 Unreported or anticipatory assignment of income.--State whether the Distributor will distribute any assets which represent earned income to the shareholders, such as receivables being reported on a cash basis, unfinished construction contracts, commissions due, or other assets resulting in an anticipatory assignment of income.

2 Reserve for bad debts.--If the Distributor will distribute to its shareholders any receivables, state the amount of any reserve for bad debts related to the receivables.

3 Installment obligations and recapture provisions.--State whether the Distributor will distribute to the shareholders in partial liquidation any installment obligations (section 453(d) of the Code), property described in sections 48, 341(f), 617(d), 1245(a), 1250(c), 1251(e), or 1252(a), or other assets the cost of which had previously been deducted for Federal income tax purposes.

4 Sale, lease, or other disposition of property.--State whether the shareholders will sell, lease, or otherwise dispose of any property, other than cash received in the distribution. If they will, describe the assets to be so disposed of and the transaction, including the consideration to be received in exchange. Identify the person acquiring the assets, and give the relationship, direct or indirect, of the Distributor and its shareholders to that person including, if a corporation, the number of shares of stock the Distributor and its shareholders own in the acquiring corporation.

.04 Redemption of stock.

1 Description of outstanding stock.--Furnish a complete description of each class of the Distributor's stock outstanding, setting forth the rights and privileges of each class.

2 Ownership of Stock.--State whether the stock is closely or widely held, and if the former, identify the shareholders, the number of shares of each class held by each shareholder, and the relationship of the shareholders to each other. If widely held, give the number of shareholders and the largest number of shares held by a shareholder.

3 Shares Redeemed.

(a) Number.--Give the number of shares of each class of stock of the Distributor to be redeemed from each shareholder.

(b) None redeemed.--If no shares of stock of the Distributor will be surrendered, give reasons why the distribution should not be considered a dividend.

(c) Non pro rata redemption.--If the distribution of property or redemption of stock will be non pro rata, submit reasons.

4 Transactions in which stock to be redeemed was acquired if stock is closely held and acquired within last five years.

(a) When acquired.--Give the dates on which the stock was acquired.

(b) From whom acquired.--Identify the person or entity from whom the stock was acquired and the relationship of such person to any of the shareholders of the Distributor.

(c) Consideration.--Describe the amount and kind of consideration paid or transferred for the stock.

5 Transactions in addition to the redemption in partial liquidation.

(a) Multiple transaction.--Describe any property the shareholders will transfer or surrender in the transaction, other than stock of the Distributor, and the consideration to be received in exchange therefor.

(b) Shareholder and the Distributor in dual capacity.--State whether all or any part of the consideration from the Distributor will be received by a shareholder as a debtor, creditor, employee, or some capacity other than that of a shareholder of the Distributor whose stock is being redeemed pursuant to sections 331 and 346 of the Code.

6 Other factors affecting the taxable status of the distribution.

(a) Declared but unpaid dividends.--State whether there are any declared but unpaid dividends on any of the stock to be redeemed.

(b) Distribution in redemption of stock under section 302 of the Code.--If it is contended any part of the distribution will qualify as one in redemption of stock under section 302, state the amount, identify the shareholders, and furnish information necessary to make a determination under section 302. See sections 1.302-1(b) and 1.346-2 of the regulations.

7 Value of stock redeemed.--State whether the fair market value of the assets distributed to each shareholder will be equal to the fair market value of the stock surrendered by each shareholder in the exchange. If it will not, give a complete explanation.

.05 General.

1 Covenants not to compete.--If a business of the Distributor will be sold or otherwise acquired by another person, state whether the Distributor will receive consideration for an agreement not to compete with the acquiring person. If it will, state whether such consideration will be included in the distribution to the shareholders.

2 Documents.--Submit copies of the following documents:

(a) Plan of complete or partial liquidation.--If no formal plan of liquidation has been or will be adopted, state whether the plan has been or will be approved by the directors and shareholders, and give the date or expected date of approval or adoption.

(b) Financial statements--Submit year-end balance sheets and profit and loss statements for each of the past five years.

.06 Assumptions or representations, if applicable.

Sec. 4. Inquiries.

Inquiries in regard to this Revenue Procedure should refer to its number and should be addressed to the Assistant Commissioner (Technical), Attention: T:I:R, Internal Revenue Service, Washington, D. C. 20224.